Current Price – $5.5
Expected Price – $6.7
Upside – 20%
Expiration Date – TBD
This is a fairly straightforward idea with potential near term catalyst. LGL has received $14m non-binding acquisition proposal for all of its operating assets. If this transaction is closed, then company will become cash shell with c. $6.7/share in cash. Shares are currently trading at pre-announcement levels (acquisition proposal was revealed on the 5th of Oct) and I would expect shares to re-rate if acquisition is confirmed.
Controlling shareholder (Gabelli family) just increased the stake 2x by oversubscribing to the rights offering and buying shares at $5.5/share - same price as currently.
- Current cash per share stands at $3.46;
- Company has $10m in federal and $16m in state NOLs - part of this will likely be utilized to cover any taxable gains form the sale of operating businesses;
- Recent share price volatility was affected by the rights offering (at $5.5/share) as well as acquisition prososal. Rights offering was announced back in August at a premium to market price and then extended twice due to the acquisition proposal. Rights offering expired on 13th of November and 1.7m new shares were issued for total gross proceeds of $9.4m.
- Gabelli family owned 32% of the stock prior to the rights offering and likely were the main participants in the rights offering. Beneficial ownership of Mario Gabelli increased from 0.46m shares to 1.43m shares - $5.2m of additional funds invested - resulting in 33% ownership. Marc Gabelli's participation in the rights offering has not been announced yet, but he had 14% stake before, so I assume he participated at least to the level where Gabelli family would reach 50% controlling interest.
- Operating businesses (design and manufacturing of frequency and spectrum control products for aerospace and defense industries) are growing and generate positive (albeit minimal) operating cashflows.
- So far there has been no further update neither from the company not from potential acquirers regarding the transaction.
- Eventual cash per share will potentially be slightly lower than the $6.7, as fees will need to be deducted on the rights offering proceeds and asset sale proceeds might be adjusted for working capital requirements.
I do not know how likely it is for the asset sale to close, but Gabelli family were willing to invest in the company at $5.5/share even before the acquisition proposal was received. Actually the whole rights offering (at premium to market price) seemed to have been designed for the sole purpose of increasing Gabelli family stake.